Credit crunch, did someone use the expression credit crunch?
Monday, December 24, 2007
Merry Xmas and A Happy New Year
Well, a Merry Xmas and a Happy New Year to all my readers. Thank you for taking the time and trouble to pass-by. This blog will now - failing major and surprising new developments in the global economy - be offline till the end of the first week in January, or till after the festival of Los Reyes Magos in Spain (for those of you who know what this is all about). Come to think of it, maybe this is just what our ever hopeful central bankers are in need of even as I write - some surprise presents from the three wise men - but I fear that this year if these worthy gentlemen do somehow show at the next G7 meet, the star in the east which draws them will not be the one described in the traditional texts, but in all likelihood the rising star of India.
Credit crunch, did someone use the expression credit crunch?
Credit crunch, did someone use the expression credit crunch?
South Korean Q4 2007 Consumer Confidence
South Korea's consumer confidence declined from a five-year high, signaling spending may slow and crimp growth in Asia's fourth-largest economy. The sentiment index fell to 106 in the fourth quarter, the lowest in three quarters, from 112, the Bank of Korea said today in a report in Seoul. A reading higher than 100 indicates optimists outnumber pessimists.
The benchmark Kospi index of stocks has fallen 8 percent from a Nov. 1 record of 2085.45 on concern U.S. subprime-related losses will slow the global economy. Lehman Brothers Holdings Inc. this month cut its 2008 growth forecast for South Korea to 4.6 percent from 4.7 percent.
The yield on a five-year government bond rose 2 basis points to 5.87 percent at 3:00 p.m. in Seoul and the won gained 0.1 percent to 939.65 versus the dollar. The Kospi climbed 2.2 percent.
South Koreans' debt-servicing costs have climbed steadily as the central bank has pushed borrowing costs to a six-year high. The Bank of Korea raised rates in July and August to curb household debt that topped 600 trillion won ($640 billion) for the first time in September.
The benchmark Kospi index of stocks has fallen 8 percent from a Nov. 1 record of 2085.45 on concern U.S. subprime-related losses will slow the global economy. Lehman Brothers Holdings Inc. this month cut its 2008 growth forecast for South Korea to 4.6 percent from 4.7 percent.
The yield on a five-year government bond rose 2 basis points to 5.87 percent at 3:00 p.m. in Seoul and the won gained 0.1 percent to 939.65 versus the dollar. The Kospi climbed 2.2 percent.
Confidence fell as ``sentiment on living conditions and the local economy weakened,'' the central bank said. ``The number of consumers with a negative view on the economy rose sharply.''
South Koreans' debt-servicing costs have climbed steadily as the central bank has pushed borrowing costs to a six-year high. The Bank of Korea raised rates in July and August to curb household debt that topped 600 trillion won ($640 billion) for the first time in September.
Friday, November 2, 2007
Land of the Rising Won
From Bloomberg this morning:
South Korean Finance Minister Kwon Okyu said the nation's exporters will cope with the won's surge against the dollar, helping economic growth accelerate next year.
The won reached a decade-high this week and companies such as Hyundai Motor Co. say it will climb further, forcing them to cut costs to boost earnings. Kwon, who expects the won's rally to run out of steam, said rising shipments and a pickup in domestic demand mean the economy will grow 4.8 percent in 2007 and 5 percent next year.
``Even with global dollar weaknesses, Korean exports will continue their robust growth,'' Kwon, 55, said in an Oct. 29 interview in Gwacheon, near Seoul. ``Our competitiveness nowadays doesn't depend on price competition, rather it depends on the quality, technology and so on,'' he said.
Samsung Electronics Co., South Korea's biggest exporter, this year surpassed Motorola Inc. to become the world's second- largest maker of mobile phones behind Nokia Oyj as it focused on more expensive handsets. Exports climbed to a record in October as higher shipments to China and Europe helped cushion the $887 billion economy from a slowdown in U.S. demand.
``Korean exporters have successfully diversified their markets and enhanced their product quality,'' said Kwon Young Sun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``As a result, Korean firms are better placed to weather shocks in individual overseas economies than in the past.''
Chinese Partner
Exports to China surged 33.1 percent in the first 20 days of October from the same period a year earlier, the Commerce Ministry said yesterday. China replaced the U.S. as South Korea's biggest export market in 2003.
Gross domestic product expanded 5.2 percent in the second quarter from a year earlier, the fastest pace in almost two years. The economy has grown in each quarter since the second three months of 2003, the longest continuous expansion since one that ended in 1992.
Between the beginning of 2004 and the end of 2006, South Korea's won climbed 28 percent, making it the biggest gainer among the 10 most actively traded Asian currencies tracked by Bloomberg. Exports, which account for 40 percent of GDP, have grown 19 percent a year on average in the same period.
The won fell 0.4 percent to 907.20 against the dollar at 12:09 p.m. in Seoul.
Kwon yesterday told parliament that the government will continue to buy or sell the currency to curb speculation.
Currency Speculation
``The government is clearly committed to blocking any speculative move'' in the foreign-exchange market, Kwon said at a parliamentary hearing.
Kwon's comments on exporters and the won contrast with those of Kim Dong Jin, Hyundai Motor's vice chairman, who said this week the currency's advance is the ``No. 1 obstacle'' for South Korea's third-biggest exporter.
Kwon and Kim also disagree on the currency's direction. Hyundai's Kim sees further gains. Kwon reiterated his view the currency's advance will cease because demand will fall along with the nation's current account surplus.
``I don't think the currency has reason to appreciate further because the rate is determined by supply and demand,'' Kwon said. He predicts South Korea's current account surplus will drop to zero this year as more Koreans travel and invest overseas, reducing demand for won.
The Bank of Korea estimates the surplus this year will be $2 billion, down from $6 billion in 2006. The government earlier this year relaxed regulations so that individuals can invest more overseas. Some foreign exchange traders said a shrinking current-account gap probably won't be enough to curb the won.
`Wishful Thinking'
``It's wishful thinking to expect a current account deficit to curb the won's gains,'' said Kim Tae Wan, a Seoul-based currency dealer with Kookmin Bank, South Korea's biggest lender. ``New Zealand and Australia have huge deficits but their currencies are rocketing.''
Australia has recorded a current account deficit each quarter since 1973 with the shortfall climbing to a record A$16 billion ($14.6 billion) in the second quarter. The Australian dollar has surged 16 percent this year to a 23-year high. New Zealand's current account gap is 8.2 percent of gross domestic product and its currency has gained 8 percent this year.
Kwon said South Korea's rising demand for electricity gives him confidence to predict a rebound in domestic demand after a slowdown in the second quarter.
Electricity sales climbed 4.2 percent in September, after gaining 6.1 percent in August and 6.6 percent in July, according to Korea Electric Power Corp.
``Electricity demand is still increasing substantially,'' Kwon said. ``That means overall sentiment isn't that bad.''
Kwon said there are still risks to growth, including the U.S. housing recession and record oil prices.
A U.S. slowdown would be mitigated by rising exports to China and India, while the current oil price is ``endurable,'' he said.
The price of crude oil climbed beyond $96 a barrel for the first time yesterday and has surged 57 percent this year. South Korea imports almost all of its oil from abroad.
South Korean Finance Minister Kwon Okyu said the nation's exporters will cope with the won's surge against the dollar, helping economic growth accelerate next year.
The won reached a decade-high this week and companies such as Hyundai Motor Co. say it will climb further, forcing them to cut costs to boost earnings. Kwon, who expects the won's rally to run out of steam, said rising shipments and a pickup in domestic demand mean the economy will grow 4.8 percent in 2007 and 5 percent next year.
``Even with global dollar weaknesses, Korean exports will continue their robust growth,'' Kwon, 55, said in an Oct. 29 interview in Gwacheon, near Seoul. ``Our competitiveness nowadays doesn't depend on price competition, rather it depends on the quality, technology and so on,'' he said.
Samsung Electronics Co., South Korea's biggest exporter, this year surpassed Motorola Inc. to become the world's second- largest maker of mobile phones behind Nokia Oyj as it focused on more expensive handsets. Exports climbed to a record in October as higher shipments to China and Europe helped cushion the $887 billion economy from a slowdown in U.S. demand.
``Korean exporters have successfully diversified their markets and enhanced their product quality,'' said Kwon Young Sun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``As a result, Korean firms are better placed to weather shocks in individual overseas economies than in the past.''
Chinese Partner
Exports to China surged 33.1 percent in the first 20 days of October from the same period a year earlier, the Commerce Ministry said yesterday. China replaced the U.S. as South Korea's biggest export market in 2003.
Gross domestic product expanded 5.2 percent in the second quarter from a year earlier, the fastest pace in almost two years. The economy has grown in each quarter since the second three months of 2003, the longest continuous expansion since one that ended in 1992.
Between the beginning of 2004 and the end of 2006, South Korea's won climbed 28 percent, making it the biggest gainer among the 10 most actively traded Asian currencies tracked by Bloomberg. Exports, which account for 40 percent of GDP, have grown 19 percent a year on average in the same period.
The won fell 0.4 percent to 907.20 against the dollar at 12:09 p.m. in Seoul.
Kwon yesterday told parliament that the government will continue to buy or sell the currency to curb speculation.
Currency Speculation
``The government is clearly committed to blocking any speculative move'' in the foreign-exchange market, Kwon said at a parliamentary hearing.
Kwon's comments on exporters and the won contrast with those of Kim Dong Jin, Hyundai Motor's vice chairman, who said this week the currency's advance is the ``No. 1 obstacle'' for South Korea's third-biggest exporter.
Kwon and Kim also disagree on the currency's direction. Hyundai's Kim sees further gains. Kwon reiterated his view the currency's advance will cease because demand will fall along with the nation's current account surplus.
``I don't think the currency has reason to appreciate further because the rate is determined by supply and demand,'' Kwon said. He predicts South Korea's current account surplus will drop to zero this year as more Koreans travel and invest overseas, reducing demand for won.
The Bank of Korea estimates the surplus this year will be $2 billion, down from $6 billion in 2006. The government earlier this year relaxed regulations so that individuals can invest more overseas. Some foreign exchange traders said a shrinking current-account gap probably won't be enough to curb the won.
`Wishful Thinking'
``It's wishful thinking to expect a current account deficit to curb the won's gains,'' said Kim Tae Wan, a Seoul-based currency dealer with Kookmin Bank, South Korea's biggest lender. ``New Zealand and Australia have huge deficits but their currencies are rocketing.''
Australia has recorded a current account deficit each quarter since 1973 with the shortfall climbing to a record A$16 billion ($14.6 billion) in the second quarter. The Australian dollar has surged 16 percent this year to a 23-year high. New Zealand's current account gap is 8.2 percent of gross domestic product and its currency has gained 8 percent this year.
Kwon said South Korea's rising demand for electricity gives him confidence to predict a rebound in domestic demand after a slowdown in the second quarter.
Electricity sales climbed 4.2 percent in September, after gaining 6.1 percent in August and 6.6 percent in July, according to Korea Electric Power Corp.
``Electricity demand is still increasing substantially,'' Kwon said. ``That means overall sentiment isn't that bad.''
Kwon said there are still risks to growth, including the U.S. housing recession and record oil prices.
A U.S. slowdown would be mitigated by rising exports to China and India, while the current oil price is ``endurable,'' he said.
The price of crude oil climbed beyond $96 a barrel for the first time yesterday and has surged 57 percent this year. South Korea imports almost all of its oil from abroad.
Sunday, September 2, 2007
South Korea Q2 2007 GDP
From Bloomberg today:
South Korea's Economy Expands 1.8 Percent on Exports
South Korea's economy expanded at the fastest pace in almost four years in the second quarter, helped by rising exports, according to revised figures released today.
The economy grew 1.8 percent, the quickest since the fourth quarter of 2003 and more than the initial estimate of 1.7 percent, the Bank of Korea said in Seoul. From a year ago, the expansion was 5 percent, up from July's estimate of 4.9 percent.
Rising overseas demand helped the country sustain the longest stretch of growth in a decade. Overseas shipments account for two-fifths of gross domestic product and orders from South Korea's biggest market, China, have more than compensated for a slowdown in the U.S.
``Growth is likely to remain resilient amid healthy exports and a pickup in domestic demand,'' Go You Sun, an economist at Daewoo Securities Co. in Seoul, said before the report was released. ``The economy will perform well through next year.''
Exports grew at the fastest pace in six months in July, a previous report showed. China's economy expanded 11.9 percent in the second quarter, the fastest pace in more than 12 years.
South Korea shows few signs of being affected by the fallout from the U.S. housing recession, Vice Finance Minister Kim Seok Dong said Aug. 30. Moody's Investors Service last month raised the nation's debt rating to A2, the sixth-highest investment grade.
Stocks rose and the currency fell. The benchmark Kospi index of stocks gained 0.3 percent to 1878.56 at 9:34 a.m. in Seoul. The won fell 0.02 percent to 938.45 against the dollar.
Exports, Consumption
Exports of goods rose 5.2 percent in the second quarter, matching the earlier estimate, today's report showed. Private consumption gained 0.8 percent, also unchanged from the earlier estimate. Business investment climbed 3.4 percent. Construction investment dropped 1.3 percent, less than the 1.4 percent decline earlier estimated.
The services industry expanded 1.3 percent in the second quarter from the first, compared with the previous estimate of 1.1 percent. A 22 percent gain in the country's stock index in the first six months of this year helped boost demand for financial products, today's report showed. The financial and insurance sector expanded 5.1 percent from the first quarter, up from the previous estimate of 3.6 percent.
Hyundai Motor Co., the country's largest automaker, said local sales jumped 88 percent and exports climbed 53 percent in July. Samsung Heavy Industries Co., the world's second-largest shipbuilder, has received $14.5 billion in orders this year, 97 percent of its annual goal of a record $15 billion.
2007 Growth Forecast
The central bank's 2007 GDP growth forecast of 4.5 percent remains ``valid,'' Ahn Kil Hyo, a central bank official said at a press briefing in Seoul.
Manufacturing expanded 3.6 percent in the second quarter from the first, matching the previous estimate. Manufacturers' confidence is at a 17-month high and factory production climbed seven times faster than expected in July.
Still, interest-rate increases may stifle spending. The Bank of Korea raised borrowing costs for the second time in two months on Aug. 9, bringing the benchmark rate to a six-year high of 5 percent.
``Two interest-rate hikes and sharp corrections in equity markets at home and abroad will eventually work against consumer spending unless household income growth unexpectedly accelerates,'' said Lim Jiwon, an economist at JPMorgan Chase & Co. in Seoul.
The benchmark Kospi index has fallen 6.5 percent since setting a record on July 25. For the year it has gained 31 percent.
South Korea's Economy Expands 1.8 Percent on Exports
South Korea's economy expanded at the fastest pace in almost four years in the second quarter, helped by rising exports, according to revised figures released today.
The economy grew 1.8 percent, the quickest since the fourth quarter of 2003 and more than the initial estimate of 1.7 percent, the Bank of Korea said in Seoul. From a year ago, the expansion was 5 percent, up from July's estimate of 4.9 percent.
Rising overseas demand helped the country sustain the longest stretch of growth in a decade. Overseas shipments account for two-fifths of gross domestic product and orders from South Korea's biggest market, China, have more than compensated for a slowdown in the U.S.
``Growth is likely to remain resilient amid healthy exports and a pickup in domestic demand,'' Go You Sun, an economist at Daewoo Securities Co. in Seoul, said before the report was released. ``The economy will perform well through next year.''
Exports grew at the fastest pace in six months in July, a previous report showed. China's economy expanded 11.9 percent in the second quarter, the fastest pace in more than 12 years.
South Korea shows few signs of being affected by the fallout from the U.S. housing recession, Vice Finance Minister Kim Seok Dong said Aug. 30. Moody's Investors Service last month raised the nation's debt rating to A2, the sixth-highest investment grade.
Stocks rose and the currency fell. The benchmark Kospi index of stocks gained 0.3 percent to 1878.56 at 9:34 a.m. in Seoul. The won fell 0.02 percent to 938.45 against the dollar.
Exports, Consumption
Exports of goods rose 5.2 percent in the second quarter, matching the earlier estimate, today's report showed. Private consumption gained 0.8 percent, also unchanged from the earlier estimate. Business investment climbed 3.4 percent. Construction investment dropped 1.3 percent, less than the 1.4 percent decline earlier estimated.
The services industry expanded 1.3 percent in the second quarter from the first, compared with the previous estimate of 1.1 percent. A 22 percent gain in the country's stock index in the first six months of this year helped boost demand for financial products, today's report showed. The financial and insurance sector expanded 5.1 percent from the first quarter, up from the previous estimate of 3.6 percent.
Hyundai Motor Co., the country's largest automaker, said local sales jumped 88 percent and exports climbed 53 percent in July. Samsung Heavy Industries Co., the world's second-largest shipbuilder, has received $14.5 billion in orders this year, 97 percent of its annual goal of a record $15 billion.
2007 Growth Forecast
The central bank's 2007 GDP growth forecast of 4.5 percent remains ``valid,'' Ahn Kil Hyo, a central bank official said at a press briefing in Seoul.
Manufacturing expanded 3.6 percent in the second quarter from the first, matching the previous estimate. Manufacturers' confidence is at a 17-month high and factory production climbed seven times faster than expected in July.
Still, interest-rate increases may stifle spending. The Bank of Korea raised borrowing costs for the second time in two months on Aug. 9, bringing the benchmark rate to a six-year high of 5 percent.
``Two interest-rate hikes and sharp corrections in equity markets at home and abroad will eventually work against consumer spending unless household income growth unexpectedly accelerates,'' said Lim Jiwon, an economist at JPMorgan Chase & Co. in Seoul.
The benchmark Kospi index has fallen 6.5 percent since setting a record on July 25. For the year it has gained 31 percent.
Wednesday, August 29, 2007
Industrial Output Rises Rapidly
From Bloomberg today:
South Korean Factory Output Jumps on Chips, Phones
South Korea's industrial production rose seven times faster than expected in July as companies increased output of semiconductors and mobile phones.
Manufacturing grew 2.1 percent from June, when it gained 1.9 percent, the statistics office said today in Gwacheon, South Korea. The median forecast in a Bloomberg News survey of 11 economists was for a 0.3 percent increase.
An increase in output may help to protect Asia's third- largest economy from a slowdown in consumer spending after the benchmark stock index fell from a record and the central bank raised interest rates twice in two months. Overseas shipments, which account for about 40 percent of the $887 billion economy, rose at the fastest pace in six months in July.
``Upbeat export momentum will keep the economy chugging along,'' said Kim Jae Eun, an economist at SK Securities Co. in Seoul. ``The economic recovery will remain unscathed for the moment.''
The won closed at 942 per dollar at 3 p.m. in Seoul, down 0.2 percent. The yield on three-year government bonds fell 2 basis points at 5.34 percent.
From a year earlier, industrial output climbed 14.3 percent in July, the fastest pace in 10 months, up from a 7.7 percent increase in June.
Production last year was depressed by strikes at Hyundai Motor Co. and its affiliate Kia Motors Corp. Auto shipments fell almost a third in July 2006. Car production jumped 38.1 percent in July from a year ago. From June, auto production declined 8.4 percent in July, today's report showed.
Semiconductors, Mobile Phones
Production of semiconductors rose 4.9 percent from June and mobile-phone output climbed 9.5 percent, both on rising demand from overseas buyers, today's report showed.
Semiconductors and mobile phone are ``two important sectors in assessing the impact of any U.S. slowdown on Asia,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. Mobile-phone demand shows an ``ongoing strength in consumer spending'' as the appetite for new model handsets tend to be discretionary.
Sales of consumer goods rose 1.6 percent from June. Corporate investment on facilities climbed 1.3 percent from a year ago.
Factory output may slow in coming months if South Koreans spend less after the central bank raised interest rates twice this year and local stock prices declined.
The benchmark Kospi stock index has dropped 8.9 percent since setting a record on July 25 on concern a U.S. housing recession would spread and slow global growth.
``The clear risk to what is a very optimistic outlook on South Korea at present is the increased likelihood of a more substantial slowing in U.S. economic activity,'' Maguire said.
The Bank of Korea lifted borrowing costs for a second time in two months on Aug. 9, bringing the benchmark rate to a six- year high.
Construction orders dropped 14.9 percent in July from a year ago, as there were fewer orders to build homes.
South Korean Factory Output Jumps on Chips, Phones
South Korea's industrial production rose seven times faster than expected in July as companies increased output of semiconductors and mobile phones.
Manufacturing grew 2.1 percent from June, when it gained 1.9 percent, the statistics office said today in Gwacheon, South Korea. The median forecast in a Bloomberg News survey of 11 economists was for a 0.3 percent increase.
An increase in output may help to protect Asia's third- largest economy from a slowdown in consumer spending after the benchmark stock index fell from a record and the central bank raised interest rates twice in two months. Overseas shipments, which account for about 40 percent of the $887 billion economy, rose at the fastest pace in six months in July.
``Upbeat export momentum will keep the economy chugging along,'' said Kim Jae Eun, an economist at SK Securities Co. in Seoul. ``The economic recovery will remain unscathed for the moment.''
The won closed at 942 per dollar at 3 p.m. in Seoul, down 0.2 percent. The yield on three-year government bonds fell 2 basis points at 5.34 percent.
From a year earlier, industrial output climbed 14.3 percent in July, the fastest pace in 10 months, up from a 7.7 percent increase in June.
Production last year was depressed by strikes at Hyundai Motor Co. and its affiliate Kia Motors Corp. Auto shipments fell almost a third in July 2006. Car production jumped 38.1 percent in July from a year ago. From June, auto production declined 8.4 percent in July, today's report showed.
Semiconductors, Mobile Phones
Production of semiconductors rose 4.9 percent from June and mobile-phone output climbed 9.5 percent, both on rising demand from overseas buyers, today's report showed.
Semiconductors and mobile phone are ``two important sectors in assessing the impact of any U.S. slowdown on Asia,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. Mobile-phone demand shows an ``ongoing strength in consumer spending'' as the appetite for new model handsets tend to be discretionary.
Sales of consumer goods rose 1.6 percent from June. Corporate investment on facilities climbed 1.3 percent from a year ago.
Factory output may slow in coming months if South Koreans spend less after the central bank raised interest rates twice this year and local stock prices declined.
The benchmark Kospi stock index has dropped 8.9 percent since setting a record on July 25 on concern a U.S. housing recession would spread and slow global growth.
``The clear risk to what is a very optimistic outlook on South Korea at present is the increased likelihood of a more substantial slowing in U.S. economic activity,'' Maguire said.
The Bank of Korea lifted borrowing costs for a second time in two months on Aug. 9, bringing the benchmark rate to a six- year high.
Construction orders dropped 14.9 percent in July from a year ago, as there were fewer orders to build homes.
Wednesday, August 8, 2007
Bank of Korea Raises Rates
The Financial Times this morning:
Bank of Korea surprises with rate increase
By Song Jung-a in Seoul
Published: August 9 2007 06:48 | Last updated: August 9 2007 06:48
The Bank of Korea unexpectedly raised its benchmark interest rate by a quarter point to a six-year high of 5 per cent on Thursday to absorb excessive market liquidity and contain growing inflationary pressure.
The rate hike, the first ever to follow just a month after a previous hike, surprised South Korea’s financial markets, driving bond prices down and pushing the won higher.
Lee Seong-tae, the BoK governor, said strong economic growth and increasing price pressure prompted the central bank to raise interest rates again as financial markets showed signs of instability amid explosive growth in the money supply.
South Korea’s economy grew 4.9 per cent in the second quarter, the fastest pace in over a year, beating economists’ expectations. The strong growth was propelled by robust exports, which jumped 20 per cent in July from a year earlier, and industrial output rose 7.6 per cent in June.
Mr Lee hinted that further tightening is unlikely this year, saying that ”the degree of financial accommodation will be markedly reduced” with the two consecutive rate hikes. And he cautioned that inflationary pressure would increase in the second half, due to a recovery in domestic demand and higher oil prices.
Bank loans to households increased by Won1,770bn in July from June, the biggest monthly gain in five months. Lending to small and mid-sized companies rose by Won3,100bn in July, increasing the risk of an asset bubble. Inflation remained stable at 2.5 per cent but Mr Lee predicted that upward pressure would grow in coming months.
Kwon O-kyu, the finance minister, supported the BoK’s move, saying the economy was showing ”clearer signs” of a recovery on the back of stronger consumption and brisk exports. ”The economic recovery, which started gradually from the beginning of the year, is becoming clearer,” he told reporters.
Both Mr Lee and Mr Kwon maintained their upbeat economic outlook, saying that the upward trend will continue in the second half, although higher oil prices and the stronger won still pose risks to economic growth. The BoK has forecast Asia’s third-largest economy to grow 4.5 per cent this year after expanding by 5 per cent last year.
Financial markets showed a sharp reaction to the surprise rate hike Thursday. The yield on the benchmark five-year government bond surged 7 basis points to a two-week high of 5.4 per cent and the won rose 0.2 per cent to 922.15 against the dollar in morning trading. The Kospi benchmark stock index pared gains to 0.6 per cent after being up as much as 1.3 per cent before the announcement.
and Bloomberg:
Bank of Korea Unexpectedly Raises Key Rate to 5%
The Bank of Korea unexpectedly raised its benchmark interest rate for a second time in as many months to curb lending that may fuel asset-price bubbles.
Governor Lee Seong Tae and his board increased the overnight call rate by a quarter point to 5 percent, the highest since July 2001, the central bank said in Seoul today. None of the 14 economists surveyed by Bloomberg News predicted the move.
Finance Minister Kwon Okyu said the decision was ``appropriate.'' He and Lee want to avoid a repeat of a debt bubble that burst in 2004 and stunted economic growth. Lending to households rose at the fastest pace in five months in July.
``The tipping point is likely to have been the explosion in household borrowing over July,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. ``The crippling debt overhang of 2001-03 remains clear in the mind of the central bank.''
In 2004, borrowers who had used credit cards to amass debt defaulted in record numbers, slowing the economy's expansion.
The yield on the benchmark five-year government bond surged 10 basis points to 5.43 percent as of 1:50 p.m. in Seoul, the biggest jump since October 2005. The won rose 0.2 percent to 922.32 per dollar. The Kospi stock index pared gains to 0.3 percent after rising as much as 1.3 percent before the decision.
Economists had expected the bank to keep rates on hold to assess the effect of the July increase and monitor whether a U.S. subprime mortgage slump will affect global growth. Today's move was the bank's first-ever back-to-back rate increase.
Urgent Task
``Concerns over soaring money growth outweighed U.S. sub- prime woes,'' said Kim Jae Eun, an economist at SK Securities Co. in Seoul. ``The most urgent task for the Bank of Korea is to put a lid on rising money growth and ensure fast growth won't cause asset-price bubbles and inflation.''
The Bank of Korea also raised the rate on so-called aggregate loans, which are offered to local banks to spur lending to smaller firms, to 3.25 percent from 3 percent.
``With a series of accumulated rate hikes, the degree of monetary easing that was supportive of the economic recovery has lessened considerably,'' Governor Lee told reporters in Seoul.
Lending by commercial banks to households surged 1.77 trillion won ($1.9 billion) in July from June, the central bank said yesterday. Loans to small and mid-sized businesses rose 3.1 trillion won, slowing from June's 8.1 trillion won gain, which was the biggest increase since December 2000.
Further Moves
``Given the hawkish tone of the central bank, a further tightening move before year-end cannot be ruled out,'' said Frederic Neumann, an economist with HSBC Markets Ltd. in Singapore. ``However, this will become dependent on trends in credit and liquidity growth over the next few months.''
Neumann maintained his prediction that lending and money supply will slow in response to credit-tightening measures and the key rate will stay at 5 percent for the rest of the year.
Central banks globally are battling to curb inflation as booming world economic growth forces up food and commodity prices. Australia raised its key rate to an 11-year high of 6.5 percent yesterday, and England, Canada and New Zealand all increased borrowing costs in the past month. European Central Bank President Jean-Claude Trichet said last week he may raise his benchmark rate from 4 percent next month.
South Korea's consumer-price inflation advanced 0.4 percent in July from June, when it was unchanged. The annual inflation rate remained at 2.5 percent. Consumer prices will climb 2.6 percent in the second half of 2007, accelerating from 2.2 percent in the first half, the central bank said last month.
Economic Revival
Growing signs of economic revival strengthened the case for a rate increase.
Consumer confidence climbed to the highest in 16 months in July, the National Statistical Office said today, signaling shoppers may help to sustain the economy's longest expansion in a decade. Consumer spending is showing a mild recovery, the central bank said today.
The economy expanded 1.7 percent in the three months to June 30, the quickest rate in 18 months. Exports gained 20 percent in July, while in June, service companies expanded at the quickest rate in almost five years and industrial production climbed for a third month.
``The Bank of Korea might think that hiking rates sooner than expected gives them room for a rainy day in the future,'' said Kwon Young Sun, an economist with Lehman Brothers Inc. in Hong Kong. ``Without any significant upside risks to growth, the bank should stay on hold for the rest of the year.''
Today's rate increase came even as South Korea's currency, the won, has strengthened. The won has surged to a 10-year high against the yen, the currency of its major export competitor.
Governor Lee said today that the won's strength will have little effect on easing inflationary pressure. Finance Minister Kwon said last week that the yen's weakness isn't justified. Borrowing in yen to buy higher-yielding assets -- the so-called carry trade -- threatens to destabilize global markets, he said.
The central bank last week introduced measures to restrict companies from borrowing in foreign currencies as it seeks to reduce the won's gains.
Bank of Korea surprises with rate increase
By Song Jung-a in Seoul
Published: August 9 2007 06:48 | Last updated: August 9 2007 06:48
The Bank of Korea unexpectedly raised its benchmark interest rate by a quarter point to a six-year high of 5 per cent on Thursday to absorb excessive market liquidity and contain growing inflationary pressure.
The rate hike, the first ever to follow just a month after a previous hike, surprised South Korea’s financial markets, driving bond prices down and pushing the won higher.
Lee Seong-tae, the BoK governor, said strong economic growth and increasing price pressure prompted the central bank to raise interest rates again as financial markets showed signs of instability amid explosive growth in the money supply.
South Korea’s economy grew 4.9 per cent in the second quarter, the fastest pace in over a year, beating economists’ expectations. The strong growth was propelled by robust exports, which jumped 20 per cent in July from a year earlier, and industrial output rose 7.6 per cent in June.
Mr Lee hinted that further tightening is unlikely this year, saying that ”the degree of financial accommodation will be markedly reduced” with the two consecutive rate hikes. And he cautioned that inflationary pressure would increase in the second half, due to a recovery in domestic demand and higher oil prices.
Bank loans to households increased by Won1,770bn in July from June, the biggest monthly gain in five months. Lending to small and mid-sized companies rose by Won3,100bn in July, increasing the risk of an asset bubble. Inflation remained stable at 2.5 per cent but Mr Lee predicted that upward pressure would grow in coming months.
Kwon O-kyu, the finance minister, supported the BoK’s move, saying the economy was showing ”clearer signs” of a recovery on the back of stronger consumption and brisk exports. ”The economic recovery, which started gradually from the beginning of the year, is becoming clearer,” he told reporters.
Both Mr Lee and Mr Kwon maintained their upbeat economic outlook, saying that the upward trend will continue in the second half, although higher oil prices and the stronger won still pose risks to economic growth. The BoK has forecast Asia’s third-largest economy to grow 4.5 per cent this year after expanding by 5 per cent last year.
Financial markets showed a sharp reaction to the surprise rate hike Thursday. The yield on the benchmark five-year government bond surged 7 basis points to a two-week high of 5.4 per cent and the won rose 0.2 per cent to 922.15 against the dollar in morning trading. The Kospi benchmark stock index pared gains to 0.6 per cent after being up as much as 1.3 per cent before the announcement.
and Bloomberg:
Bank of Korea Unexpectedly Raises Key Rate to 5%
The Bank of Korea unexpectedly raised its benchmark interest rate for a second time in as many months to curb lending that may fuel asset-price bubbles.
Governor Lee Seong Tae and his board increased the overnight call rate by a quarter point to 5 percent, the highest since July 2001, the central bank said in Seoul today. None of the 14 economists surveyed by Bloomberg News predicted the move.
Finance Minister Kwon Okyu said the decision was ``appropriate.'' He and Lee want to avoid a repeat of a debt bubble that burst in 2004 and stunted economic growth. Lending to households rose at the fastest pace in five months in July.
``The tipping point is likely to have been the explosion in household borrowing over July,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. ``The crippling debt overhang of 2001-03 remains clear in the mind of the central bank.''
In 2004, borrowers who had used credit cards to amass debt defaulted in record numbers, slowing the economy's expansion.
The yield on the benchmark five-year government bond surged 10 basis points to 5.43 percent as of 1:50 p.m. in Seoul, the biggest jump since October 2005. The won rose 0.2 percent to 922.32 per dollar. The Kospi stock index pared gains to 0.3 percent after rising as much as 1.3 percent before the decision.
Economists had expected the bank to keep rates on hold to assess the effect of the July increase and monitor whether a U.S. subprime mortgage slump will affect global growth. Today's move was the bank's first-ever back-to-back rate increase.
Urgent Task
``Concerns over soaring money growth outweighed U.S. sub- prime woes,'' said Kim Jae Eun, an economist at SK Securities Co. in Seoul. ``The most urgent task for the Bank of Korea is to put a lid on rising money growth and ensure fast growth won't cause asset-price bubbles and inflation.''
The Bank of Korea also raised the rate on so-called aggregate loans, which are offered to local banks to spur lending to smaller firms, to 3.25 percent from 3 percent.
``With a series of accumulated rate hikes, the degree of monetary easing that was supportive of the economic recovery has lessened considerably,'' Governor Lee told reporters in Seoul.
Lending by commercial banks to households surged 1.77 trillion won ($1.9 billion) in July from June, the central bank said yesterday. Loans to small and mid-sized businesses rose 3.1 trillion won, slowing from June's 8.1 trillion won gain, which was the biggest increase since December 2000.
Further Moves
``Given the hawkish tone of the central bank, a further tightening move before year-end cannot be ruled out,'' said Frederic Neumann, an economist with HSBC Markets Ltd. in Singapore. ``However, this will become dependent on trends in credit and liquidity growth over the next few months.''
Neumann maintained his prediction that lending and money supply will slow in response to credit-tightening measures and the key rate will stay at 5 percent for the rest of the year.
Central banks globally are battling to curb inflation as booming world economic growth forces up food and commodity prices. Australia raised its key rate to an 11-year high of 6.5 percent yesterday, and England, Canada and New Zealand all increased borrowing costs in the past month. European Central Bank President Jean-Claude Trichet said last week he may raise his benchmark rate from 4 percent next month.
South Korea's consumer-price inflation advanced 0.4 percent in July from June, when it was unchanged. The annual inflation rate remained at 2.5 percent. Consumer prices will climb 2.6 percent in the second half of 2007, accelerating from 2.2 percent in the first half, the central bank said last month.
Economic Revival
Growing signs of economic revival strengthened the case for a rate increase.
Consumer confidence climbed to the highest in 16 months in July, the National Statistical Office said today, signaling shoppers may help to sustain the economy's longest expansion in a decade. Consumer spending is showing a mild recovery, the central bank said today.
The economy expanded 1.7 percent in the three months to June 30, the quickest rate in 18 months. Exports gained 20 percent in July, while in June, service companies expanded at the quickest rate in almost five years and industrial production climbed for a third month.
``The Bank of Korea might think that hiking rates sooner than expected gives them room for a rainy day in the future,'' said Kwon Young Sun, an economist with Lehman Brothers Inc. in Hong Kong. ``Without any significant upside risks to growth, the bank should stay on hold for the rest of the year.''
Today's rate increase came even as South Korea's currency, the won, has strengthened. The won has surged to a 10-year high against the yen, the currency of its major export competitor.
Governor Lee said today that the won's strength will have little effect on easing inflationary pressure. Finance Minister Kwon said last week that the yen's weakness isn't justified. Borrowing in yen to buy higher-yielding assets -- the so-called carry trade -- threatens to destabilize global markets, he said.
The central bank last week introduced measures to restrict companies from borrowing in foreign currencies as it seeks to reduce the won's gains.
Borrowing in S Korea
In Bloomberg today:
South Korea's Household Debt Grows at Fastest Pace in 5 Months
By Kim Kyoungwha
Aug. 8 (Bloomberg) -- South Korea's household debt grew at the fastest pace in five months in July, increasing pressure on the central bank to raise interest rates for a second time this year.
Lending by commercial banks to households surged 1.77 trillion won ($1.9 billion) from the previous month, the biggest rise since February, the Bank of Korea said in Seoul today. The gain was more than double a 776 billion won increase in June.
A resurgence in household borrowing may persuade central bank Governor Lee Seong Tae and his board to increase the benchmark interest rate from a six-year high. Policy makers raised the key rate to 4.75 percent last month on concern a jump in lending may spur inflation as economic growth accelerates.
Lee and his policy makers meet at 9 a.m. in Seoul tomorrow and an interest-rate decision is due before 11 a.m.
All 14 economists surveyed by Bloomberg News expect the bank will leave the rate at 4.75 percent. Still, nine of 14 analysts see a quarter-point increase to 5 percent later this year.
Lending to small and mid-sized businesses rose by 3.1 trillion won in July, slowing from June's 8.1 trillion won gain, which was the biggest monthly increase since the bank began compiling the figures in December 2000.
Mortgage lending advanced 127.4 billion in July, after climbing 710 billion won in June, today's report showed.
Lee and Finance Minister Kwon Okyu say that excessive lending and money-supply growth could push up prices and result in an asset bubble, undermining the economy's longest expansion in a decade.
In an effort to slow borrowing, the central bank on June 21 reduced the funds it makes available for loans to small businesses for the first time in six months. Last year, the bank ordered commercial lenders to hold more money as reserves.
Lf, the broadest measure of the money supply and formerly known as M3, rose an estimated 10.4 percent in June from May, the central bank said, citing preliminary figures. Lf stands for liquidity of financial institutions.
South Korea's Household Debt Grows at Fastest Pace in 5 Months
By Kim Kyoungwha
Aug. 8 (Bloomberg) -- South Korea's household debt grew at the fastest pace in five months in July, increasing pressure on the central bank to raise interest rates for a second time this year.
Lending by commercial banks to households surged 1.77 trillion won ($1.9 billion) from the previous month, the biggest rise since February, the Bank of Korea said in Seoul today. The gain was more than double a 776 billion won increase in June.
A resurgence in household borrowing may persuade central bank Governor Lee Seong Tae and his board to increase the benchmark interest rate from a six-year high. Policy makers raised the key rate to 4.75 percent last month on concern a jump in lending may spur inflation as economic growth accelerates.
Lee and his policy makers meet at 9 a.m. in Seoul tomorrow and an interest-rate decision is due before 11 a.m.
All 14 economists surveyed by Bloomberg News expect the bank will leave the rate at 4.75 percent. Still, nine of 14 analysts see a quarter-point increase to 5 percent later this year.
Lending to small and mid-sized businesses rose by 3.1 trillion won in July, slowing from June's 8.1 trillion won gain, which was the biggest monthly increase since the bank began compiling the figures in December 2000.
Mortgage lending advanced 127.4 billion in July, after climbing 710 billion won in June, today's report showed.
Lee and Finance Minister Kwon Okyu say that excessive lending and money-supply growth could push up prices and result in an asset bubble, undermining the economy's longest expansion in a decade.
In an effort to slow borrowing, the central bank on June 21 reduced the funds it makes available for loans to small businesses for the first time in six months. Last year, the bank ordered commercial lenders to hold more money as reserves.
Lf, the broadest measure of the money supply and formerly known as M3, rose an estimated 10.4 percent in June from May, the central bank said, citing preliminary figures. Lf stands for liquidity of financial institutions.
Subscribe to:
Posts (Atom)
